INTERNATIONAL LOANS

Nothing wrong with Eurobond borrowing

The problem is the way the money is used after it has been borrowed

In Summary

• The Treasury has started a virtual roadshow to raise $1 billion through a Eurobond by the end of July

• In 2016 there was controversy when Sh215 million of a $1 billion Eurobond allegedly did not reach the Treasury

The Treasury Building
TREASURY BUILDING: The Treasury Building
Image: FILE:

Treasury officials have started a virtual roadshow to raise $1 billion through a Eurobond by the end of July and a further $1 billion next year.

Many people will see this as just glorified looting. They will remember the furore over a Sh1 billion Eurobond in 2016 where Sh215 million was allegedly never received by the Treasury ( although government said it was properly allocated and disbursed).

There is nothing inherently wrong with a Eurobond or an international syndicated loan. Kenya mainly borrows through Treasury Bills carrying an interest rate of around 11 per cent. Kenya has almost $10 billion outstanding in Kenya shilling bonds ( and double that in domestic debt to the private sector and other creditors).

The value of the outstanding Eurobonds is therefore substantially less than the outstanding Treasury Bills.

The advantage of international bonds is that the interest rate is half that of local Treasury Bills. As long as the shilling does not depreciate, it is much cheaper for Kenya to borrow in dollars or euros.

So the problem is not the Eurobond, the problem is the way the money is used after it has been borrowed.

Quote of the day: "Who has sent you against me? Who has told you to do this thing?"

Roberto Calvi
The Vatican banker was murdered on June 17, 1982